Standard & Poor’s Ratings Services said that it had assigned its ‘BBB-‘ long-term and ‘A-3’ short-term foreign and local currency corporate credit ratings to Bahrain’s largest telecommunications operator Bahrain Telecommunications Company (Batelco). The outlook is negative.
“The negative outlook mirrors that on the sovereign. Accordingly, a downgrade of the Kingdom of Bahrain would trigger a one-notch downgrade of Batelco,” S&P in a statement explained.
The ratings are based on the company’s stand-alone credit profile (SACP), which Standard & Poor’s Ratings Services assesses at ‘bb+’, as well as on Standard & Poor’s opinion that there is a “high” likelihood that the government of the Kingdom of Bahrain (BBB/Negative/A-3) would provide timely and sufficient extraordinary support to Batelco in the event of financial distress.
“The SACP is primarily supported by the company’s leading market position in the Bahraini telecoms market, strong profitability, and good cash flow generation. In the past several years following the introduction of competition, Batelco’s market share has declined to below 50% in the mobile segment. However it remains robust, especially in the post-paid segment, where competition is less-price driven. Batelco’s profitability in the domestic market remains strong with a reported EBITDA margin of close to 50% in the mobile segment in 2010. Batelco has currently no debt; however it could incur debt as the company considers acquisitions aimed at increasing the scale of its operations. Nevertheless, we expect Batelco to keep leverage at moderate levels, maintaining some headroom against our target ratio for the current rating of 3.0x debt to EBITDA,” S&P in a statement said.
The ratings, S&P added, are constrained by Batelco’s relatively small scale, which creates a longer-term risk for its competitive position in its domestic market, its exposure to country risk, and its payment of a high percentage of its profits as dividends, which limits the company’s financial flexibility. “Some uncertainty remains over the credit impact of potential future mergers and acquisitions in emerging markets as part of Batelco’s strategic goal of expansion.”
“In accordance with our criteria for government-related entities (GREs), our view of a “high” likelihood of extraordinary government support is based on our assessment of Batelco’s “Important” role for the government of Bahrain as a provider of key communications infrastructure and as a flagship national company; and “very strong” link with the government, considering the latter’s 78% shareholding (direct and indirect) in the company, its appointment of board members, and its active role in the oversight of Batelco’s decision-making processes, which is particularly relevant for decisions related to potential investment outside the country,” it said.